Duty free shops located at International Airports are beyond custom frontiers of India, hence supply made by these shops shall be treated as export and zero rated supply and eligible for refund of ITC.

Case Title: Cial Duty Free & Retail Services Ltd. (CDRSL) v. Union of India

Court: High Court of Kerala

Petition Nos.: WP(C) No. 6850/2018, 12274, 12278, 12279(H), 12280(H), 12317, and 13237(D)/2020

Judgment Date: 22 September 2020

Relevant Sections:

CGST Act, 2017: Sections 2(78), 2(79), 9(1), 54(3), 16

IGST Act, 2017: Sections 2(4), 2(5), 7(2), 16(1)

Customs Act, 1962: Sections 2(11), 58, 58A, 69

CGST Rules: Rule 89, Rule 95-A

Category of Dispute: Refund – Input Tax Credit and Applicability of GST on Duty Free Shop transactions

Facts of the Case (¶1–20)

1. CDRSL, operating Duty Free Shops (DFS) at Calicut International Airport under a concession agreement, sought refund of unutilized Input Tax Credit (ITC) for multiple tax periods (¶2).
2. The petitioner contended that supplies from DFSs are exports under Customs and GST laws and do not attract GST. Initially granted ITC refunds were later revoked by authorities (¶3–4).
3. Petitioner argued that as DFSs are licensed under Sections 58 and 58A of the Customs Act and operate within customs areas, their sales qualify as export (¶7–9).
4. They highlighted identical refunds were allowed to similar entities in other states, and that CBIC accepted Bombay High Court’s ruling in Sandeep Patil’s case by not filing SLP (¶5, 10, 27).
5. GST was being wrongly levied on Minimum Guarantee Fees under concession agreement despite the DFSs being located in non-taxable territories (¶11–13).

Questions in Consideration (¶21–28)

1. Whether sales from Duty Free Shops at arrival and departure terminals constitute ‘exports’ under the IGST Act and thus qualify as zero-rated supplies (¶6, 8, 29)?
2. Whether refund of unutilized ITC is justifiable under Section 54(3) of the CGST Act read with Rule 89 of the CGST Rules (¶7, 28)?
3. Whether GST is leviable on revenue share/minimum guaranteed fees paid under concession agreements for DFS operations located in customs areas (¶11–14)?
4. Whether Rule 95-A limiting tax exemption to departure DFSs alone is legally sustainable (¶22, 30)?
5. Whether writ petitions are maintainable despite alternate remedy of appeal (¶22, 25)?

Observations of the Court (¶26–33)

1. Court noted that CBIC chose not to challenge the Bombay HC ruling in Sandeep Patil’s case, wherein supply from DFSs was held to be export and eligible for full ITC refund (¶27).
2. It reiterated that goods sold at DFSs are in customs bonded areas and do not cross customs frontiers, and thus qualify as exports (¶29–30).
3. Referring to Aarish Altaf Tinwala’s case and Circular No. 106/25/2019-GST, it held that DFSs located in customs areas are part of export chain (¶30–31).
4. The application of Rule 95-A was deemed arbitrary and against constitutional mandate under Article 286 and GST framework, especially when other states are granting similar refunds (¶30–31).
5. GST on concession fees may be paid and then refunded via ITC, following due process under Rule 89 and Section 54(3) (¶33).

Judgment of the Court (¶32–34)

1. All impugned orders rejecting refunds were set aside. Writ petitions were allowed (¶32).
2. Court refrained from issuing declaration on GST in WP(C) No. 6850/2018 due to interim stay in force; GST not payable on concession fee till 30-06-2020 (¶33).
3. From 01-07-2020 onwards, petitioner to pay GST on concession fee, claim ITC and seek refund under Rule 89 read with Section 54(3) of the CGST/SGST Acts (¶33).
4. Court affirmed the principle that supplies from DFSs, both arrival and departure, are zero-rated exports and eligible for refund of ITC (¶34).

Between Fine Lines

• Duty Free Shops located in customs areas are outside the taxable territory under GST law.
• Supplies from such DFSs to international passengers qualify as exports and are zero-rated.
• Refund of ITC cannot be denied merely due to location within India if the sale is deemed export.
• Rule 95-A’s application limiting benefits to departure shops was held discriminatory.
• Revenue’s inaction on challenging similar judgments affirmed legal position favoring exporters.

Summary of Referred Cases

Takeaway

“Duty Free, But Not Tax Free? Kerala HC Reaffirms Zero-Rated Status of Airport DFS Sales”